Monday, April 14, 2008

My recent post entitled a secular warning for the airlines elicited a lot of comments from the pilot community. The comments fall mainly into the category of “if there is a pilot shortage why am I so badly paid/poorly treated?”

Don't confuse secular with cyclical effectsMy answers consist of several parts. First, don’t confuse the secular effect with the cyclical effect. With airlines from Aloha to Frontier going into Chapter 11, a possible Delta-Northwest merger in the works and the US economy in recession, there should be a surplus of pilots in the short term – that’s the cyclical effect. The longer term secular effect is found at the age demographics of most flying clubs that I have visited – there are few members in their 20s and 30s. Members below the age of 50 seem to be the “young pups”.

Some airlines have begun to address this problem by doing their own training, which takes a long time to pay off, or moving to the multi-crew pilot concept in which someone gets qualified as a member of a cockpit crew instead of a pilot. Under this scheme, it is possible to qualify as a member of a cockpit crew without being qualified as a private pilot. This solution seems to be just a case of the blind leading the blind.

Pilots reap what they sowThe history of poor pay for pilots is related to the number of people who love flying. There are many pilots who would still say that they have the greatest job in the world despite the mediocre pay scales, long hours away from home, etc. If you are willing to accept those conditions in exchange for the experience of flying for a living, who do you have to blame for that?

Still a lot of denial out there about the secular trendNevertheless, I continue to be disappointed by the reaction to this secular trend. A recent discussion of air travel in 10 years by a number of observers in the aviation industry was mostly a case of people talking their own “book”, an indication that the industry remain in denial over the looming pilot shortage.

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Welcome to my blog Humble Student of the Markets. These are my observations and musings about the markets (mostly equities), hedge funds and investments in general.My experience has been a quantitative equity manager in US, Canada, EAFE and Emerging Markets and commentator on hedge funds and their returns patterns.

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